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Court overturns $27M award to fired Allstate portfolio managers

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Court overturns $27M award to fired Allstate portfolio managers

A federal appeals court has overturned a more than $27 million jury award to four fired Allstate Insurance Co. portfolio managers, stating they had failed to prove the insurer’s alleged defamation had hindered their job prospects.

In 2009, Northbrook, Illinois-based Allstate launched an internal investigation into suspicious trading on its equity desk by the 7th U.S. Circuit Court of Appeals in Chicago in Daniel Rivera et al. v. Allstate Insurance Co.

The initial inquiry found email evidence that suggested four portfolio managers had timed their trades at the expense of their portfolio, which included two pension funds to which Allstate owed fiduciary duties.

Following investigations by a law firm and a consulting firm, it was determined the timed tradings had potentially cost the pension funds $91 million, which Allstate reimbursed into the funds.

The four traders were accused of violating the insures’ conflict-of-interest policy by timing trades and terminated for cause in December 2009.

In February 2010, Allstate reported the incident in its annual Form 10-K, and the same day sent a memo to employees in its investment department about the situation, neither of which identified the four traders.

The four sued Allstate in US. District Court in Chicago for defamation based on the 10-K and the memo, and also charged the company with violating the Fair Credit Reporting Act for failing to give them a summary of the law firm’s report.

A jury awarded them more than $27 million in compensatory and punitive damages, with the judge tacking on additional punitive damages and attorneys’ fees under the FCRA, according to the ruling.

The verdicts were vacated by a unanimous three-judge appeals court panel on appeal. “The statements in the 10-K and internal memo were not defamatory per se, so they are actionable (if at all) only on a theory of defamation per quod,” said the ruling.

“This type of claim requires proof of special damages causally connected to the publication of the defamatory statements. So the plaintiffs had to prove that prospective employers declined to hire them because of Allstate’s defamatory statements and that they suffered damages as a result.

“The Plaintiffs testified that they could not find comparatively lucrative work after they were fired, but they presented no evidence that any prospective employer declined to hire them as a consequence of Allstate’s statements in the 10-K or the internal memo. That’s fatal to the defamation claims,” said the ruling.

The ruling also vacated the FCRA claims, stating they were based on a “bare procedural violation” that was “unaccompanied by any concrete and particularized harm or risk of harm to an interest protected by the statute.” 

 

 

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